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Now part of Raymond James, its history spans 200-plus years and now includes 193 advisors nationwide with about $40 billion in client assets

Location. Location. Location. It matters to advisors as well as realtors.

With Raymond James Financial’s purchase of Alex. Brown from Deutsche Bank, its San Francisco-based advisors have moved up to the 45th floor of a downtown skyscraper, near where they had worked before becoming part of the German bank.

“It is quite exciting for them …,” said Haig Ariyan, president of Alex. Brown. “San Francisco is an example of the opportunity we have to grow the business to more than double what it is today, not necessarily in one year but over the next few years, from the standpoint of the number of advisors. We would expect the assets under management to follow closely along.”

The San Francisco Bay Area branch includes 10 producing advisors. Along with the entire group of 193 advisors nationwide — who have about $40 billion in client assets — these reps seem pleased to be getting their brand back, too. Deutsche Bank switched the group’s original name to Private Client Services.

“Alex. Brown has a long history, and its brand recognition is pretty powerful, even with Alex. Brown buried in other organizations for the last 20 years,” explained Chairman Seth Waugh. “Alex. Brown resonates a lot with individuals in the United States.”

The history of Alex. Brown goes back to 1800, when Irish-born immigrant Alexander Brown founded the first investment bank in the U.S. in Baltimore. That’s about 70 years before Deutsche Bank was started in Germany; about 100 years before its first owner, Bankers Trust, was founded in New York; and over 160 years ahead of the start of its current owner, Raymond James, in St. Petersburg, Florida.

Given the different roots and attributes of Alex. Brown and its new parent firm, advisors and industry-watchers are eager to see how the merger of the two companies proceeds after its Labor Day wrap-up. Research on Wealth looks at how the relationship is evolving, and what the industry can expect from the pairing of a boutique wealth-management group based in New York and a much larger Florida-headquartered company, which now works with about 6,800 independent, employee and bank-based registered representatives in the U.S. and abroad.

Wall Street Meets Main Street

“The acquisition of Alex. Brown was a very savvy move for Raymond James,” said Chip Roame, head of the consultancy Tiburon Strategic Advisors. “It added more high-net-worth focused financial advisors, who were more in large cities and East Coast-based, both good for Raymond James’ synergies.”

Bay Area-based Roame says Raymond James is “the most ‘Wall Street’ of the independent broker-dealers” and of what some industry-watchers refer to as regional firms (though most are now nationally focused), “so it’s less of a stretch” than if a similar rival firm had acquired Alex. Brown. Plus, Raymond James “has some proven expertise in acquisitions,” having bought Morgan Keegan in 2012. (It also just completed the purchase of wealth-manager 3Macs — MacDougall, MacDougall & MacTier Inc. — of Canada.)

Another consultant in the Bay Area agrees. “Acquiring more high-net-worth reps is good for Raymond James,” said Tim Welsh, head of Nexus Strategy. “Raymond James is a solid name in the industry. It’s not like Alex. Brown is going from anything like Tiffany to Kmart. They are both well-known — equal in terms of industry recognition and standing, which should serve them well.”

Raymond James executives naturally are upbeat on how they view the combination. “The opportunity for Alex. Brown to become a division of Raymond James is in many ways a homecoming,” said Tash Elwyn, head of Raymond James & Associates, the firm’s employee-advisor channel. “The Alex. Brown advisors are now affiliated with a client-driven private client firm that shares the focus they have on wealth management.”

From 1999 to 2016, Alex. Brown was part of Deutsche Bank, a financial-services firm with over 100,000 employees worldwide. When the deal with Raymond James was announced in September 2015, the bank’s global asset and wealth unit had about $1.2 trillion of assets under management.

In April 2015, Deutsche Bank agreed to pay regulators in the United States and the United Kingdom about $2.5 billion to settle issues related to its alleged manipulation of the London Interbank Offered Rate (or LIBOR). This fall, just after Raymond James had completed its Alex. Brown acquisition, the U.S. Department of Justice said it was seeking a $14 billion settlement with Deutsche Bank regarding its sales of mortgage-backed securities.

With its move to Raymond James, Alex. Brown’s New York office is relocating to the opposite side of Park Avenue, between 51st and 52nd streets. “Raymond James brings a non-Wall Street point of view to the business and a very successful one,” said Ariyan, who started work with Deutsche Bank as an advisor in Greenwich, Connecticut, in 1996, relocated to the midtown office in 2005 and became head of Private Client Services in 2010.

Alex. Brown’s approach “is very much embedded in Wall Street and what is traditionally offered there,” since its advisors have to keep up with the demands of their generally ultra-high-net-worth clientele, he says. The mix of the two businesses “is a recipe for success,” Ariyan adds.

Retention Results

Transitions in ownership and other high-profile events can lead to advisor poaching. “It only happens every decade or so, making it a time when advisors are urged to stay with their current firm,” said Welsh, and giving rival firms the chance “to snag” some top advisors.

In other words, the retention of advisors “is key in these types of acquisitions,” notes Roame. “Obviously, the core of what is being acquired is the financial advisors, their clients, their assets and the resulting revenues.”

According to both firms, the Alex. Brown advisors nationwide produce about $1.5 million a year in fees and commissions on average. That puts them ahead of UBS Americas’ reps at $1.1 million (as of Sept. 30, 2016), as well as advisors with Morgan Stanley and Merrill Lynch.

For Raymond James, retention of the roughly 200 advisors with Alex. Brown stands above 90%. The firm sees this figure as “a tremendous success,” according to Elwyn.

“To have such a significant percentage of these advisors choose to continue to be affiliated with Alex. Brown and become part of the Raymond James family not only speaks about the power of the combination but also … creates tremendous pride within Raymond James more broadly,” the Raymond James & Associates, Private Client Group president explained.

Elwyn knows the Alex. Brown reps had “their choice” of firms to move to, if they wanted to depart. “They had all firms in the profession knocking on their door and inviting them to join,” he said. “But so many chose to stay and grow their business with Raymond James, which reflects quite positively on the broader organization. We are thrilled with the retention results.”

Deutsche Dimension

Hitting this milestone can be at least partly attributed to the fact that Alex. Brown advisors are able to keep offering their clients certain Deutsche Bank products and services. As part of the acquisition, the reps will be able to tap equity new-issue securities, for instance, for seven years. Plus, Raymond James obtains access to some alternative investments and other investment products and services, which means it can “expand its offerings to existing and future ultra-high-net-worth clients,” according to a press release.

“You can say [the deal] is an upgrade for Raymond James, which is why they acquired Alex. Brown,” said Welsh. “Raymond James is one of the few firms that could do it, since Deutsche Bank did not want to sell the crown jewels to a large rival like Wells Fargo or Bank of America.”

Thus, both Alex. Brown and Raymond James executives are upbeat on what the merger means for their respective recruiting efforts. “It’s early days,” said Chairman Waugh, “but we are getting lots of incoming calls. Brands are hard to build and harder to kill. Ours continues to be powerful. The 90%-plus retention of advisors is unprecedented.”

His colleague Ariyan, other executives and the Alex. Brown advisors work to ensure that its “culture is personalized within the firm,” according to the non-executive chairman. “Haig personally hires and helps retain all the advisors, so there is a close, intense culture at the firm — along with all the capabilities we offer to match those of the wirehouses.”

In fact, Alex. Brown has an advantage by being a boutique-size group within a larger organization, but not within one that is too big. “Larger firms [in the industry] have resources, but some can get tangled up in issues due to their size and can have trouble creating personalized service,” Waugh explained. But Alex. Brown doesn’t anticipate having such issues, he says, and instead thinks it can offer clients unencumbered service “using our Raymond James’ resources and our continuing relationship with Deutsche Bank.”

Jon Mallon, the regional executive for the San Francisco and Los Angeles offices of Alex. Brown, says the industry’s post-merger interest in Alex. Brown is inspiring. “We are now seen as being in a growth mode …, which makes us attractive,” he said.

The wirehouse advisors he is speaking with about possibly moving to the firm “want an alternative and really see us as a unique story,” explains Mallon, a CFA, “and … in the Bay Area we are seeing a lot of interest.”

For Elwyn, the high retention rate of the Alex. Brown reps is “a great harbinger of the recruiting success to come within Alex. Brown and of momentum more broadly within Raymond James & Associates and Raymond James Financial Services,” its independent-advisor channel. “In the past few years, we’ve had tremendous success at recruiting and have been very successful in terms of both advisors and teams of great size. We are confident that the Alex. Brown-Raymond James combination will continue to lead to recruiting success,” he explained.

Could the goal of doubling Alex. Brown’s size over the next few years weaken any of the firm’s abilities and appeal? “We do not want to dilute the boutique, high-touch, service-oriented focus we offer. But we can double in size” without hurting it, according to Mallon.

As the regional executive sees it, Alex. Brown reps are extremely loyal and keep the firm’s principles and culture firmly in mind: “One advisor, for instance, has kept his copy of a pamphlet with the firm’s value statement in it for 27 years.”

Waugh concurs. “I think our growth is very scalable. We can grow to two times our size or bigger without disrupting the culture,” he said. “There’s lots of runway before the culture would change — we could grow up to 1,000 advisors within Alex. Brown.”

Merger Talk

While most Alex. Brown reps have chosen to remain with the firm after the acquisition by Raymond James, how are clients responding to the shift?

According to Ariyan, the general impression of Raymond James “has gone up dramatically since we announced the transaction about a year ago and is really quite positive.” As clients have learned more about the products, platform and services, their comfort level with the new parent firm has risen “and the positive reception has been very reassuring,” adds the New York-based executive.

Mallon says clients he is in touch with “have been overwhelmingly positive.” The reason for this outcome, he believes, is communication. “We did lots of communicating with clients and talked about expectations, so we kept them updated … and solicited their input, as well,” said the executive during an interview in the firm’s Bay Area office.

Advisor Melinda Fishel sees the Raymond James’ platform as “perfect for my clients,” says the San Francisco-based rep. “The biggest positive is the number of resources and team members in place. The systems are great.”

In fact, Fishel states, Raymond James has been “open” to learning how things were done previously at Alex. Brown. The advisor tells her clients the move to Raymond James “is a net positive,” though she admits she has to push herself at times to absorb all the ins and outs of the “robust” platform, new technology, research and other resources.

Fortunately, a transition team has been there to help and proved itself especially important over Labor Day, when the Alex. Brown advisors and their clients moved onto the Raymond James platform — about nine months after the deal was first announced.

For instance, the San Francisco team had the support of Terri Steffner, an information-technology educational consultant who led the migration of the branch onto Raymond James’ system and received a Robert A. James Award of Service Excellence for her efforts.

“Terri provided the first exposure the advisors had to the Raymond James’ platform, and there were other people who were here, too, which made a huge difference,” said Jennifer Bottalico, CFP, CAIA, head of product solutions and services for Alex. Brown. “I’m sure she wanted to hide some days” due to all the demands and questions she faced, “but she was amazing!”

In fact, the Bay Area branch has invited Steffner to gatherings with clients and staff. “We initiated her very well into what these ties [between Alex. Brown and Raymond James] are all about,” said Bottalico, who is based in San Francisco. “She really earned the distinction.”

Details, Details

Of course, the merger has more to it than technology. “Communications proved to be so critical,” said Mallon. “The equity we have earned with advisors over the years helped us with the transition.”

“We heard from executives like Haig [Ariyan at Alex. Brown] and Tash [Elwyn at Raymond James], who told the advisors to ‘trust them and wait until the process is done.’ When it did end, it came together with a high success rate” and met expectations, explained Bottalico, who has worked for the firm since 1994.

“We breathed a sigh of relief,” she added, reflecting on the waves of change the firm faced when it became part of Bankers Trust and later Deutsche Bank. “Someone said recently, ‘Alex. Brown is back.’ ”

The integration effort, of course, is ongoing, and the partners are “discovering things as they go along,” says Waugh. “You can anticipate a lot, but then other things come up.”

The two firms are “working together to find solutions,” so as new issues arise they resolve them “and go onto the next one,” he said. “It’s complicated, since we are doing an extraction from one firm and transition to another. Now, it is fairly seamless for the clients, but it’s not without a fair amount of work for the transition team.”

Having a responsive relationship, Waugh adds, benefits both firms in the long run: “Raymond James is very much willing to work with us and even to do things differently to get things done …, and it’s important to them that we succeed. It’s a real partnership — they want nothing but our success.”

Food for Thought

Industry consultants say that more deals like Raymond James’ purchase of Alex. Brown are to come. “I think we will see more creative M&A transitions over the next few years, and I would encourage corporate strategy teams at firms like Raymond James to be looking broadly for acquisitions,” said Roame.

In other words, he said, larger broker-dealers need to “think outside the box” and look at everything from high-net-worth insurance agencies to private banks, as well as at defined-contribution plan firms, national RIAs and full-service broker-dealers for potential partners.

Such steps are needed, according to Welsh, as firms find that it “is harder and harder to differentiate themselves in the high-net-worth space.” This is because many products and services that firms and clients used to have limited access to are becoming more widely available via open architecture platforms and third-party asset managers.

Being a HNW or UHNW firm and offering clients “exclusive” products and services, the consultant argues, is getting tougher. This reality, he pointed out, means that M&As will have to involve investment banks or other entities with offerings that help advisors stand out from the crowd.

While the Raymond James-Alex. Brown-Deutsche Bank arrangement can be considered forward-looking in this sense, it’s also firmly built on history, said executives, and that matters to advisors and their clients. The Alex. Brown flag, for instance, is now proudly displayed again on the wall of the San Francisco office, having spent some time in a closet in recent years.

“It conveys our strong connection to the history of the firm,” said Mallon. “It’s important to have our own identity and for the business to take particular pride in it.”

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